FAQ: FTC Enforcement Actions
Marketers that have been named as a defendant in a federal court enforcement lawsuit initiated by Federal Trade Commission typically have a number of questions about the process and what to expect. The following are some of the questions most commonly asked of FTC defense attorneys, followed by general answers that have been prepared by Hinch Newman in order to shed some light on FTC consumer protection federal court litigation and administrative actions. Hinch Newman’s sophisticated skill set across the digital marketing industry gives the firm a unique ability to provide strategic defense in court and at the agency level, distinguishing it from other law firms.
Q: When Does the FTC File a Lawsuit in Federal Court?
- A: The FTC can decide to file a lawsuit in federal district court for violation of legal regulations that it enforces, for violation of a federal court or administrative order or for unfair or deceptive acts and practices. Typically, prior to initiation of enforcement proceedings, the FTC has amassed a lot of evidence of what it considers to be deceptive advertising practices.
Q: How Are Enforcement Actions Usually Initiated?
- A: Typically, FTC enforcement lawsuits are filed under seal with an ex parte application for a temporary restraining order, asset freeze and appointment of a receiver to assume control of the business and its assets. The FTC then seeks judicial entry of a preliminary injunction that precludes further alleged unlawful conduct and maintains the asset freeze until the case is over.
Q: What Kind of Relief Does the FTC Usually Seek?
- A: In a federal lawsuit, the FTC typically seeks injunctive relief and civil monetary penalties. Traditionally, the FTC seeks to disgorge what it considers to be “ill gotten” gains. In administrative litigation, the FTC seeks cease and desist orders.
Q: What Must the FTC Show to Obtain a Federal Court Injunction Under Section 13(b) of the FTC Act?
- A: Pursuant to Section 13(b) of the FTC Act, the FTC must establish that there exists a likelihood that it will succeed on the merits of the case and that the balance of equities tips in the agency’s favor.
Q: What Property Does an Asset Freeze Typically Encompass?
- A: An asset freeze often encompasses corporate and personal bank accounts, and seizure of property. Asset freezes are utilized to prevent defendant entities and individual owners, officers and employees from dissipating assets that the FTC pursues as damages. The FTC routinely seeks to freeze all of a defendant’s assets for potential consumer redress, including alleged “ill-gotten” gains and “untainted” assets unrelated to the alleged unlawful conduct (e.g., previously purchased real estate, investments, insurance and/or retirement accounts). Revenue generated from lawful business activities, after entry of a court order, typically do not fall within the scope of an asset freeze.
Q: How Can the FTC Obtain a TRO and Freeze My Assets Without Providing You Notice?
- A: The FTC possesses significant authority to participate in ex parte discussions with judges, conduct investigations and initiate federal court lawsuits without first having to provide notice. The rationale being that the absence of notice is necessary to protect consumers and preserve assets.
Q: Can You Challenge Entry of a Preliminary Injunction?
- A: Yes. The process is often heavily fact-specific. Successfully challenging entry of a preliminary injunction and/or the scope of the asset freeze can provide leverage and necessary legal resources. However, the facts and law must line up in order to do so.
Q: Can You Challenge or Attempt to Limit the Scope of an Asset Freeze?
- A: Yes. A qualified FTC defense attorney can work with you to aggressively challenge or limit the overall scope of an asset freeze. By design, such asset freezes often leave defendants without the ability to pay for basic and necessary living expenses, such as mortgage payments, taxes and attorneys’ fees to defend against the FTC’s allegations. Court possess broad discretion with respect to releasing funds for such purposes. Hinch Newman possesses extensive experience assisting defendants in FTC litigation matters with such matters, including the release of necessary funds and exempting various assets from stipulated settlement agreements.
Q: Are There Other Arguments That Can be Made to Invalidate an Asset Freeze?
- A: Yes. Hinch Newman has distinguished experience successfully negotiating and litigating the modification of assets freeze orders on behalf of digital marketers. In addition to the “abandoned conduct” and “no right to monetary restitution” line of arguments, depending upon the facts, experienced FTC defense counsel may be able to establish to that the asset freeze itself - or, the scope thereof - is not warranted because there is no likelihood that the defendant will dissipate assets or disregard a court order, that spousal assets should be excluded, and that the facts and circumstances warrant the release of funds for living expenses and attorneys’ fees.
Q: What if You Violate an Asset Freeze Order?
- A: Violating a court order can result in, without limitation, a finding of contempt of court, fines and even imprisonment. It is critical that defendants are familiar with each and every obligation and restriction in applicable court orders so as to avoid even an inadvertent violation.
Q: Are There Other Limits to the FTC’s Enforcement Authority?
- A: Yes. The FTC routinely used Section 13(b) of the FTC Act as the basis to file lawsuits in federal court to stop allegedly deceptive, unfair (or anti-competitive conduct), and to seek injunctions and monetary relief. Section 13(b) of the FTC Act, 15 U.S.C. §53(b), authorizes the FTC to seek temporary restraining orders or preliminary injunctions if the FTC has reason to believe that a person or entity “is violating” or is “about to violate” a law enforced by the FTC. A number of courts have recently ruled against the FTC’s authority to bring cases under Section 13(b) for claims in federal court arising from abandoned conduct, and that the agency is required to articulate specific facts of existing or impending conduct. Additionally, courts have traditionally held that disgorgement of ill-gotten gains and asset freezes are within the purview of the equitable relief bestowed upon the FTC pursuant to Section 13(b). At least one federal court has now created a judicial split of authority by holding that Section 13(b) only permits the FTC to seek injunctive relief, and that the Federal Trade Commission cannot obtain monetary relief in the form of restitution under Section 13(b) when bringing deceptive practices claims in federal court. Hinch Newman possesses cutting-edge experience litigating such issues against the Federal Trade Commission, including, whether the agency even possesses the legal authority to freeze assets, much less untainted assets that could be used to retain counsel.
Q: What is an FTC Administrative Proceeding?
- A: In lieu of initiating a federal court enforcement action, the FTC sometimes opts to proceed via an administrative proceeding is a slow, quasi-court proceeding in which an administrative law judge received evidence and rules upon whether it believes there has been a violation of the FTC Act. FTC Commissioners exercise final decision-making authority
Q: Does the Relief Available to the FTC in Administrative Actions Differ From Relief in Federal Court Lawsuits?
- A: Yes. The FTC can only seek injunctive relief for violations of the FTC Act in an administrative proceeding. Section 19 of the FTC Act permits the FTC to pursue a federal court action to obtain equitable money relief for violations of administrative cease-and-desist orders only when a “reasonable man would have known under the circumstances” that the conduct was “dishonest or fraudulent.” Such actions are subject to a three year statute of limitations. Hinch Newman significant experience in FTC matters benefits clients that wish to attempt to leverage the FTC’s limited ability to seek monetary remedies via administrative proceedings during settlement discussions.
Q: Can You be Personally Liable For Violating the FTC Act?
- A: Yes. Decisions makers face liability for FTC Act violations. In fact, other federal regulators also seek to hold individuals - not just companies – liable for unfair or deceptive acts or practices in enforcement lawsuits. Generally speaking, those that “participate in,” “control” or “have the ability to control” the conduct in question are potentially liable, individually.
Q: Can You Settle, Rather Than Litigate?
- A: Yes. The FTC has unlimited resources and many defendants choose to resolve FTC lawsuits amicably. The FTC typically attempts to settle via a consent order before resorting to federal court litigation or an administrative litigation. However, the parties can enter into a settlement even after litigation has been initiated.
Q: What Does Settling with FTC Usually Look Like?
- A: FTC consent orders usually have a financial component and injunctive provisions designed to permanent stop alleged unlawful conduct. Consent orders also often incorporate “fencing in” relief designed to prevent additional unlawful conduct, as well as mandatory order distribution, compliance and reporting obligations. Hinch Newman regularly negotiates the scope of consent agreements with the FTC, including limiting conduct prohibitions, limiting or eliminating various bans, modifying compliance requirements and reporting obligations, and excluding various assets from settlement. The firm has also successfully secured numerous total or partial suspended judgments on behalf of clients that have respectively resulted in no monetary remedy, or a mere fraction of the amount sought by the agency.
Q: Should You Settle or Litigate Your Case?
- A: It depends. Consult with a qualified regulatory defense counsel about numerous factors that should be taken into account, including, but not limited to, applicable facts and law. Contact Hinch Newman to discuss your particular legal matter, recent developments relating to the FTC judicial enforcement authority and how these development might be beneficially leveraged.
Q: What is a Suspended Judgment?
- A: Depending upon the circumstances, the FTC may be agreeable to suspending a judgment in full, or in part. Such judgments are based upon a defendant’s inability to pay the full amount of alleged consumer injury. Before making a determination, the FTC will require and carefully evaluate detailed financial disclosure information. Defendants are also required to swear to the accuracy of personal and corporate financial statements in exchange for a total or partially suspended judgment. A material misrepresentation or omissions can have serious consequences, including a reopening of the enforcement matter and subsequent entry of the full judgment amount. If you are the target of an FTC lawsuit or administrative action, consult with a qualified FTC defense attorney that possesses experience negotiating suspended monetary judgments.
Q: Are Some Marketing Verticals or Business Activities More Dangerous Than Others?
- A: Yes. The FTC traditionally allocates more resources to protecting vulnerable populations such as the elderly and military veterans. In addition, health related campaigns (e.g., diet, weight loss, nutraceutical, skin creams, CBD and nutraceuticals), free trials and subscription models, credit repair, debt relief and unlawful telemarketing operations are high enforcement priorities.
Q: Does the FTC Refer Cases for Criminal Prosecution?
- A: Sometimes. The FTC works closely with the U.S. Department of Justice on a range of matters involving various types of fraud, including mortgage relief, student loan debt relief, discount clubs, real estate investments, health products and unlawful telemarketing operations. If you have been named as a defendant in an FTC enforcement matter, Hinch Newman can assist with the preservation of applicable privileges, including, the Fifth Amendment privilege against self-incrimination.
Q: How Can Hinch Newman Help?
- A: Hinch Newman's extensive complex regulatory and litigation skills on difficult government-related problems are a difference maker for clients. The firm represents digital marketers in Federal Trade Commission advertising-related lawsuits and administrative proceedings. Marketers turn to Hinch Newman’s savvy defense capabilities, breadth of experience dealing with the Federal Trade Commission and substantive depth in the performance marketing industry when their vital interests are at stake. If you are a defendant in an FTC action or learn that you may soon be named, it is imperative that you immediately contact experienced FTC defense counsel in order to evaluate the best course of conduct, including, but not limited to, potentially availing yourself of recent judicial trends that may be available to cut-off the FTC’s ability to obtain federal court relief, or even monetary damages. For more detailed answers to any questions you might have, or for an evaluation of your individual case, please contact Hinch Newman directly.
Informational purposes only. Not legal advice.
Please contact us at (212) 756-8777, via email to info@hinchnewman.com or via our Online Case Submission Form.